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Foreign Currency Mortgages: Why take the risk?

Foreign currency mortgages

Foreign currency mortgages

During the late eighties and early nineties, mortgages based on foreign currencies became highly fashionable as a result of the high rates of interest in Spain at the time.

During this period the Japanese economy, after a long recession, was in turn offering very low and attractive rates of interest, causing the Japanese Yen to be a star player within this new type of product created by the Spanish banks for their customers to buy their new home. Many financial advisers and lawyers rushed to endorse and advise their clients to sign up for this low cost mortgage which at the beginning, offered many obvious benefits, only later to become a nightmare for home owners as interest rates began to rise as the Yen became stronger. Many families were caught up in a financial crisis forced to buy Yen with a devaluing Spanish Peseta. It was said at the time that the only Spaniards unaffected by all of this were the pilots flying for Iberia, the Spanish airline, who received their salaries in Yen.

As a way out, banks advised their customers to spread their risk by trading in multi currencies such as the American dollar, the Swiss franc or sterling, and although this helped to lessen the burden, the downward spiral continued, caused principally by the uncertainty and vulnerability of volatile foreign currency markets.  Of course, it’s fair to say that had the foreign currency in which your mortgage was locked-in remained at a low rate of interest, you would have been in front. But is it worth trading your home?

Today, the Euribor offers the lowest rate in its history and presently offers the best possible opportunity to invest and purchase a home, without entering into the risks of speculative foreign currency markets that in the mainstream are completely beyond the control or understanding of the average home owner.

Robert Edwards – LPG SPAIN Blog.


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